Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

A) average costs to increase
B) average costs to decrease
C) average costs to remain constant
D) marginal costs to increase

Question

Diego Sanchez · Accepted Answer

Final Answer : C, Explanation :  When a proportional increase in all inputs leads to an equal proportional increase in output, it indicates constant returns to scale. Under constant returns to scale, average costs remain constant as output increases, assuming input prices do not change.

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